Widepoint Corp Q1 FY2026 Earnings Call

Good afternoon. Welcome to WidePoint's First Quarter 2026 Earnings Conference Call. My name is Holly, and I will be your operator for today's call. Joining us for today's presentation are WidePoint's President and CEO, Jin Kang; Chief Revenue Officer, Jason Holloway; and Chief Financial Officer, Robert George. Following their remarks, we will open up the call for questions from WidePoint's analysts and major investors. If your questions were not taken today and you would like additional information, please contact WidePoint's Investor Relations team at [email protected]. Before we begin the call, I would like to provide WidePoint's safe harbor statement that includes cautions regarding forward-looking statements made during this call. The matters discussed in this conference call may include forward-looking statements regarding future events and the future performance of WidePoint Corporation that involve risks and uncertainties that could cause actual results to differ materially from those anticipated. These risks and uncertainties are described in the company's Form 10-Q filed with the Securities and Exchange Commission. Finally, I would like to remind everyone that this call will be made available for replay via a link in the Investor Relations section of the company's website at www.widepoint.com. Now I would like to turn the call over to WidePoint's President and CEO, Mr. Jin Kang. Sir, please proceed.

Thank you, operator, and good afternoon, everyone. Thank you for joining us today to review our financial and operational results for the first quarter ended March 31, 2026. Given we recently held our full year earnings call, today's discussion will be brief. We are pleased to announce the strong momentum we experienced exiting 2025. For the first quarter of 2026, we achieved revenue of $40.6 million, adjusted EBITDA of $752,000 and free cash flow of $674,000. Additionally, we are pleased to report positive EPS for the first quarter. These results will serve as a strong foundation as we move through the rest of the year. As we look ahead, our outlook for 2026 is largely driven by two key factors with the CWMS 3.0 contract being top of mind. A few weeks ago, Congress ended a record long shutdown of DHS by approving funding for the majority of agencies under DHS. While this funding excluded CBP and ICE, the broader funding and opening of DHS ends a prolonged period of uncertainty for DHS. We view this encouraging development as a major tailwind for the pending CWMS 3.0 award and a catalyst to propel WidePoint forward. We continue to believe that we are in the best position to capture the CWMS 3.0 award. The depth of our services, certifications and qualifications is uniquely aligned with DHS' need and cannot be matched by our competitors. The remaining variable now is the timing of the award. With the majority of DHS now fully funded, we believe the CWMS 3.0 award could be announced at any time. That said, DHS may choose to wait until CBP and ICE are funded before making an official award announcement. In early May, the Senate Judiciary Committee and Senate Homeland Security Committee unveiled an approximate $72 billion budget reconciliation bill to fund both ICE and CBP through 2029. The progress to officially fund all agencies under DHS is encouraging for the CWMS 3.0 timeline and is something we will monitor closely. With that said, we are continuing to receive and process task order awards with many extending into Q1 2027 and some even into Q2. We are also happy to report that just last week, we received a contract modification that extends the ordering period of the CWMS 2.0 to June 24, 2026. We are particularly encouraged that it was only extended for one month, which leads us to believe that an update from DHS will be provided by the new contract end date. We remain eager to hear from DHS soon. We believe that even if an award is announced before June 24, an additional extension under the 2.0 contract may still be needed as DHS may need to account for a protest period after the official 3.0 award announcement. Currently, there is $100 million in ceiling remaining under the 2.0 contract, which should be more than sufficient to fund the contract extensions if necessary. That said, we believe that we are beyond the biggest hurdle for the CWMS 3.0 award. We will continue to monitor the situation closely, and we hope to hear the official award within the next few weeks. We will provide any updates as they become available. The second factor that will shape the outlook for the remainder of 2026 is the implementation process under the carrier contract with one of the big three U.S. carriers. We continue to remain on track to complete the initial implementation and begin recognizing revenue under this contract in the second half of 2026, as stated in the last quarter's earnings call. A key driver is the carrier's current platform will no longer be viable at the end of Q2 2026. And without WidePoint's ITMS platform in place, the carrier will be forced to operate without a compliance system. We believe this is a strong indicator of urgency, which we view as a strong tailwind for the second half of the year and into 2027. Beginning to recognize the SaaS revenue over the next three years under this contract will be critical for WidePoint's future margin profile trajectory. As a reminder, there will be a ramp-up period as the number of managed devices scales. Though by the end of 2026, we expect our ITMS platform to be managing approximately one-third of all of the devices currently covered under the contract. As our future outlook remains influenced by these two contracts, we will be holding off providing concrete full year guidance until these two factors are officially addressed. While our confidence remains high and both contracts continue to benefit from strong momentum and urgency, we want to ensure that any guidance we provide is not premature or artificially conservative. Our goal is to provide guidance grounded in clarity and visibility to ensure a more accurate and transparent view into our 2026 trajectory and expectations are provided to the shareholders. We do believe that WidePoint is well positioned to achieve double-digit percentage growth from 2025 results and continue to maintain positive adjusted EBITDA and free cash flow throughout 2026. While CWMS 3.0 and the carrier contract will remain our foundation, we want to reiterate the robust nature of the DaaS pipeline we hold. We believe that landing one of these Fortune 100 commercial opportunities could materially impact our growth trajectory as well. These conversations are still ongoing, and we hope to provide more concrete developments later this year. Much of the work and strategic investments WidePoint has made over these past several years are now beginning to come together and bear fruit. We remain highly confident and optimistic about the breadth of opportunities developing in our pipeline and look forward to sharing additional details as these initiatives continue to materialize. I will now hand the call over to Jason, who will provide additional insight into our sales and marketing initiatives. Jason?

Thanks, Jin, and good afternoon, everyone. As Jin outlined, progress within the carrier contract is an important initiative. I am happy to report that we are progressing through the functionality testing, which is a fundamental driver that gives us confidence we will complete the implementation and begin delivering services on schedule, which is slated for the second half of the year. Another encouraging development under the contract is that the carrier has requested to add additional functionality. This speaks to the excellent service and how the carrier has been pleased so far through the process. Importantly, this additional request does not change our overall timeline. We plan to go live in the second half of 2026 following completion of the initial implementation and functionality testing and simultaneously begin testing the new functionality requested by the carrier. A new development this past quarter was securing the managed services with a leading national beverage bottler. As part of this engagement, the bottler has authorized and granted WidePoint's VP of Procurement and Vendor Management exclusive access to its procurement and inventory systems. This was traditionally a responsibility within the National Bottler's internal IT leadership team. And now our own WidePoint personnel will directly oversee and enhance procurement operations, improve cycle efficiency and enable more consistent data-driven decision-making across the bottler's supply chain. This new development now makes WidePoint the exclusive provider for the National Bottler to create new opportunities for cost discipline and operational improvement. Last quarter, we noted that we were actively working with select clients to transition towards an as-a-service model. WidePoint offers both IT as a Service and Device as a Service. Let me provide clarification regarding the differences between the two and why offering both is a very powerful option for the commercial sector. IT as a Service is an operating model where IT delivers pooled capabilities as on-demand outcome-focused services to the business, usually with consumption-based pricing and service catalogs. These pooled capabilities include infrastructure, platforms, apps, security and support. Device as a Service is a subscription-based offering for end-user hardware and life cycle services, including procurement, imaging, maintenance, support and disposal, billed per device, per user. The key difference is IT as a Service is an overall service delivery model for IT capabilities and Device as a Service is a specific subscription of providing and managing physical devices that can be one component within an IT-as-a-Service program. In addition to working with CDW, our IT MSP group, which typically focuses on IT as a Service, has also been working with select commercial customers to add Device as a Service as well. This highlights our ability to successfully collaborate with large enterprises and reinforces a growing IT-as-a-Service and Device-as-a-Service pipeline that consists of commercial opportunities with Fortune 100 companies. Our Device-as-a-Service progress is still ongoing and interest from target customers continues to remain high. On to MobileAnchor. We continue to make progress with our derived credentials on the mobile devices. As we previously reported, MobileAnchor is being deployed under a number of agencies, including the FAA, DOJ and HUD OIG. Conversation is ongoing with the Department of Energy and the Department of the Treasury as well. HUD OIG entered its second year and FAA is progressing with the rest in early or pilot stages. We are encouraged with the traction MobileAnchor is seeing amongst different agencies and remain optimistic in the product's long-term potential. With that, I will now turn the call over to Bob to discuss our financial results. Bob?

Thanks, Jason, and thanks to everybody for joining us today. I'm pleased to share the details of our financial results for the first quarter ended March 31, 2026. Total revenue for the quarter was $40.6 million, an increase of $7.1 million or 21% from the $33.5 million reported for the same period last year. Now I'll provide a further breakdown of our revenues. Our carrier services revenue for the quarter was $25.8 million, an increase of $3.4 million compared to the same period last year. The increase was primarily as a result of the growth in the number of phone lines under management, in particular, the Customs and Border Protection task order received in late 2025 for an additional 30,000 lines of service. Our managed services fees for the quarter were $9.3 million, an increase of $800,000 from the same period last year. The increase was primarily due to the additional task order with Customs and Border Protection, which I just mentioned. Billable services fees for the quarter were $1.3 million compared to $1.8 million in the same period last year. Billable service fees were adversely impacted by the partial shutdown of DHS beginning in February of 2026, which resulted in reduced billable activity on certain contracts. With the majority of DHS fully funded and progress being made towards funding ICE and CBP, we expect billable levels to normalize as contract activity resumes. Reselling and other services in the first quarter increased by $3.4 million to $4.2 million compared to $800,000 in the same period last year. The increase was primarily related to the absence of the out-of-period adjustment recorded in the first quarter of 2025, which reduced revenues by approximately $2.7 million as well as the continued normalization of over-the-period revenue recognition for reselling and SaaS-type contracts. Gross profit for the quarter increased by $800,000 to $5.6 million or 14% of revenues compared to $4.8 million or 14% of revenues in the same period in 2025. The more significant metric of gross profit percentage, excluding carrier services, was 34% compared to 37% in the same period last year. The lower comparative gross profit percentage is a result of higher reselling revenues, which are lower margin in 2026 compared to the same period in 2025. Our gross profit percentage will vary from period to period based on our revenue mix. Sales and marketing expenses for the first quarter were $600,000 or 1% of revenues, which is consistent with the same period last year. We expect to see further dollar increases here as we continue to invest in sales and marketing efforts, but we expect sales and marketing to be lower as a percentage of revenues in the future. General and administrative expenses in the first quarter were $4.8 million or 12% of revenues compared to $4.7 million or 14% of revenues in the same period last year. The slight increase was primarily due to higher share-based compensation expense, which was partially offset by approximately $500,000 of internal IT labor costs that were deferred in connection with the implementation activities under the carrier SaaS contract. Excluding the impact of the deferred implementation costs, operating expenses would have increased more significantly period-over-period. Upon go-live, along with deferred revenue, the deferred costs will be amortized to revenue and cost of sales over the contract terms. To the extent internal IT personnel continue to perform billable customer work after go-live, related labor costs are expected to be classified as direct costs rather than general and administrative expenses. We expect general and administrative expenses to increase as our business grows, but to remain constant or lower as a percentage of revenues. In the first quarter, depreciation and amortization expense was consistent period-over-period at $228,000 compared to $224,000. Adjusted EBITDA, a non-GAAP measure for the quarter was $752,000 compared to $92,000 in the same period last year. Free cash flow for the quarter, which we define as adjusted EBITDA minus capital investments, increased to $674,000 compared to $65,000 in the same period last year. We believe a sequential comparison of EBITDA and free cash flow provides a clearer view of this quarter's growth and a clearer view of our momentum. On a sequential basis, both adjusted EBITDA and free cash flow improved meaningfully from the fourth quarter. Adjusted EBITDA increased 64% and free cash flow increased 101%, highlighting the momentum we carried into 2026. The first quarter also marked our first net income positive quarter since 2021. Net income was $77,000 or EPS of $0.01 per share compared to a net loss of $724,000 or a loss of $0.08 per share in the same period last year. While we are pleased with this progress, it's important to note that continued EPS is not yet a straight-line trajectory. In the near term, our ability to remain EPS positive will depend in part on securing additional paid implementation scope related to our major carrier SaaS contract, the timing of its go-live and the level of initial activity once the contract is live. That said, we believe the business is well positioned to achieve this objective over time. Winning the CWMS 3.0 contract, scaling the number of devices management under the carrier contract and securing our DaaS opportunities are all expected to meaningfully improve our margin profile and bottom line results. We believe it is a matter of when, not if we achieve a sustainable positive EPS outlook. Federal contract backlog totaled $218 million as of March 31, 2026. And moving to the balance sheet, we ended the quarter with $10.9 million in unrestricted cash. We also have a revolving line of credit facility, which we're in the process of renewing that provides us with $4 million in potential borrowing capacity, though we do not anticipate having to rely on this facility. We also maintain an at-the-market or ATM stock offering facility, which provides flexibility to sell shares under the open market at prevailing market prices. At this time, however, we do not expect to utilize the facility at our current stock price. This completes my financial summary. For a more detailed analysis of our financial results, please refer to our Form 10-Q, which was filed prior to this call. With that, I will now hand the call back over to Jin.

Thank you, Bob, and Jason. We believe we are approaching several important inflection points across our opportunities, led by the pending CWMS 3.0 award. We stand ready to support DHS as needed and remain optimistic as we await the formal award announcement. The carrier contract also remains on track, and we look forward to ramping work under the contract throughout the second half of 2026. DaaS continues to remain a real opportunity, and we believe it has the potential to materially improve our profitability. Overall, we are excited about the development ahead and remain focused on executing the opportunities in our pipeline. This concludes our prepared remarks. We will now take questions from our analysts and major shareholders. Operator, will you please open the call for questions?

Operator provides instructions for participating in the question queue. Your first question for today is from Scott Buck with Titan Partners.

I guess first question is on the DaaS pipeline. It feels like the sales cycle there has been, maybe slower than I expected and maybe slower than you expected as well. What seems to be the feedback you're getting from potential customers there?

Yes. Our DaaS opportunities are through our partnership with CDW. We are at the mercy of the customers' schedules for implementation. I continue to view the DaaS opportunity as a meaningful strategic initiative for the company, but the timing and the structure of the opportunities are still evolving and have been pushed to the right. We are actively engaged with CDW and our potential customers. We believe the market demand to secure many of these managed mobility devices and solutions continues to grow. There's a lot of interest, but we have been somewhat at the mercy of our partner and these large enterprises. We thought that federal government customers were slow and bureaucratic, but commercial customers are also being very careful; they want to consider all the options. These opportunities are real, and we should have some significant news coming up in the second half. As you know, we made significant investments in our strategy to move to this as-a-service model, including a major logistics space that we procured near our Columbus offices. We see significant greenfield opportunities ahead.

Okay. Perfect. So you're just at the mercy of their schedules. Perfect. And then if you were to get one of these larger Fortune 100 deals across the finish line, what does the deployment schedule look like? How quickly could we start to see an impact on the P&L?

Our systems are ready to go and our ITMS Intelligent Technology Management system is FedRAMP authorized, which meets all of the security requirements for the federal government. These are similar requirements that our Fortune 100 companies have in terms of cybersecurity. We'll be ready on day one operationally. The logistics required for acquiring the devices will primarily be handled by our partner CDW, which relieves WidePoint from footing the large capital investment. We're teamed with CDW for that reason. We'll be ready on day one in terms of facilities and capabilities to process the devices, but the logistics of rolling these devices out in the hundreds of thousands to various locations globally is the limiting factor. We should be able to implement quickly, within about 30 days of signing the contract, but the ramp-up will be measured and depends on how fast we can get the devices and roll them out.

Okay. Perfect. That's helpful. And then one last one for me. I'm curious if you can walk us through the mechanics of moving from 2.0 to 3.0. Is there a potential hiccup in the way you guys get paid? How would that work assuming you are the sole award winner?

In terms of moving from 2.0 to 3.0, it should be fairly seamless. We have task orders that extend until April of next year, and the federal government often runs contracts in parallel. As old task orders expire under the old contract, they will issue new task orders on the new contract. For the initial $150 million run rate related to existing work, task orders will be managed accordingly. For the additional $150 million ceiling increase, they will issue task orders under CWMS 3.0 for new scope. Some task orders could come in during the second half even before old task orders expire because these are new scopes of work. Invoicing, contract requirements and operations will largely be unchanged for us, unlike competitors who would have to implement and configure entirely new systems. That's another reason we feel we have the inside track for CWMS 3.0: it would be a painful rip-and-replace process for DHS if they chose a new provider after all the work we've implemented over the last two decades. We feel good about our chances.

Okay. Perfect. So it sounds like it's kind of feathered in. From an investor standpoint, we likely wouldn't recognize any kind of change at all. Great. If I can squeeze one more in, Jin: The backlog, how do we think about the cadence of that? The $218 million, what is expected to be monetized over the next 12 months versus 24 months or longer?

The contract backlog includes task orders with DHS and several larger customers on Device as a Service and the commercial side. A large portion of the approximately $200+ million backlog is DHS-related. As we execute on the contracts over the next 12 months, we should work off roughly 75% to 80% of that backlog. As we continue to work off those contracts, new task orders will be issued to refill the backlog. So I would say most of it could be worked off in 12 to 18, maybe up to 24 months, but we expect the backlog to be replenished as we execute.

Your next question is from Barry Sine with Litchfield Hill Research.

A couple of questions. First, on CWMS. You already touched on this in the prepared remarks. Obviously, the Department of Homeland Security is only partially funded, and it sounds like you don't think that's going to be an impact. The President has asked that they get the reconciliation bill to his desk by June 1, and you've been extended to June 24. Could you handicap the odds that we see it before the reconciliation bill? Or do you think it will have to be after the reconciliation bill?

It's hard to predict exact timing, but I agree that June 1 is an important date given the stated intent to have the reconciliation bill by then. Based on recent activity, it is possible DHS could make an award prior to June 1. The bill that passed recently funded most of DHS except ICE and CBP. DHS can move forward without that funding, though ICE and CBP would not be able to issue task orders under the new funding until they are funded. ICE and CBP currently have task orders extending into next year, so there is not an urgent timing pressure. The extension to June 24 suggests DHS believes an award could be made before that date. So it could happen at any time now.

Okay. Switching gears on the big carrier SaaS contract: I want to understand how the revenue ramps up. You said the current system becomes nonviable at the end of Q2. However, you're not going to get the full revenue impact starting when it goes live; that will have to ramp up. My guess is as you deploy new handsets onto your system you'll get revenue for those, and that's why the ramp-up, and you'll have to wait until the base is fully on your system to get the full revenue benefit. Is that fair?

That's a fair statement. The data is the important part — IMEI numbers, serial numbers, phone numbers, user information — and we are prepared on day one, once the go-live date is reached, to bring all of that information into our system and process any new devices brought online. Our implementation depends on the carrier providing the data. The carrier's plan appears to be to go live in tranches: one set of data, then the next, then the next. That's why in Bob's remarks he said we could have roughly 30% of the units under management as we exit 2026. We've been working with the carrier and the data schedule has meant it arrives in dribs and drabs for testing. They are running out of time with their current system, so there should be a big push into the second half of this year.

In terms of the revenue from this contract, I recall you said you expect about $40 million over five years and roughly a $10 million run rate per year. You also mentioned additional enhancements. Are you changing that $40 million? Are you going to charge more now that you're adding enhancements?

Excellent question. I'll start and then have Bob add detail. The contract we announced was $40 million to $45 million over the five-year period, so that implies about a $10 million annual run rate. There are additional requirements that add approximately $2 million of implementation revenue for enhancements and modifications expected in 2026. Bob can explain how that will be recognized.

Barry, because this is part of a larger contract, we combine it with the larger contract for accounting. What we're getting paid now for implementation is being recorded as deferred revenue and the corresponding implementation costs are being deferred to the extent they can be recovered. We would expect to receive another $1.9 million to $2 million related to enhancements. It's not exactly clear when amounts will be recognized as straight billable revenue versus under the deferral and amortization methodology. For now, we are deferring the revenue and the cost and will recognize them over the contract period.

The short answer is the contract value increases from roughly $40 million to $45 million, and additional enhancements could take it closer to $47 million. There will be additional revenues, but timing and recognition are being dictated by the implementation and accounting treatment.

So a minute ago you said 30% of units would be live by the end of the year, but then you also said you'd be at a $10 million annual run rate. If you only have 30% of the units live by year-end, why would you have the full run rate?

I misspoke earlier. I meant that we expect to be fully ramped by the end of 2026.

That clarifies that. On the carrier SaaS opportunities: you won one of the big three carriers. Are you pursuing the other two carriers and where are those processes?

Our recent FedRAMP authorization has been an important enabler and strengthens our credibility for large enterprises. We are pursuing the two other major U.S. carriers as well as certain international carriers. We are optimistic about the potential to expand into those relationships and are pursuing them diligently. We have already started initial discussions and will continue until we close additional carrier relationships.

Have they returned your calls? Have you made presentations? Can you give more detail on the process?

We have had some initial discussions with those carriers. That's the extent of what we can share at this point.

Any other major contracts longer term? In the past we've talked about the 2028 Olympics, the census, and possibly other large events like FIFA. Anything else out there that you consider major opportunities?

We are pursuing the census and LA28 as two major opportunities. FIFA is a U.S. event and could present opportunities, but we do not currently have specific insight there. We're also tracking opportunities such as GSA Alliant 3 and NASA SEWP VI, which have large ceilings, and we are responding to requests for proposals for those contracts.

One last question for Bob: capital spending spiked in the first quarter versus a year ago. What are you spending the money on and how much longer will that continue?

Part of the increase reflects a low baseline last year. We're spending primarily on compliance-related software and tools to facilitate audits on our systems and upgrades to security, including some early work on post-quantum capabilities. Some of these costs are capitalized and some are not, so it's a mixed bag. We initially thought CapEx would be about $250,000 annually, but given these emerging requirements, we are re-evaluating and it may tick up. I don't want to give a precise new run rate at this time because requirements are evolving.

To add, some of our investments may need to increase as our market cap improves and we potentially become an accelerated filer, which carries additional reporting and compliance requirements. We may need to invest in finance and accounting systems and enhanced cybersecurity capabilities to meet those requirements. We expect a modest increase, but not a material amount.

Your next question is from Casey Ryan with AmeraX.

Good quarterly update. A lot of good questions have been covered. I just have one question about managed services. You called out a 34% gross margin in the quarter, which has been in a band of the low- to mid-30s in recent quarters. With DaaS and IT as a Service, do you think those revenues represent higher gross margins than the mid-30% we've seen from managed services?

Yes. We're forecasting higher margins for the opportunities in our pipeline. Some of the smaller engagements we have now aren't necessarily worth highlighting, but they do have healthy margins.

Our goal is to combine all revenue streams to achieve gross margins of 50% or higher over time. We're making progress, particularly with SaaS revenue, which we expect to be over 70% gross margin, and DaaS, which we forecast to be over 60%. If we win CWMS 3.0, there are built-in escalators as well. We also adjusted prices to reflect inflation over the past several years, so we expect managed services margins to improve under those contracts.

Okay. Great. As the revenue mix shifts, the margin transformation will be impactful and good for the company. Thank you for the update today.

At this time, this concludes our question-and-answer session. If your question was not taken, please contact WidePoint's IR team at [email protected]. I'd now like to turn the call back over to Mr. Jin Kang for closing remarks.

Thank you, operator. We thank everyone for taking the time to join us today. As the operator mentioned, if there were any questions that we did not address today, please contact our IR team. You can find their full contact information at the bottom of today's earnings release. Thank you again, and have a great evening.

Thank you for joining us today for WidePoint's First Quarter 2026 Conference Call. You may now disconnect.